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How Much Retirement Income Will You Really Need?

November 16th, 2010 | Comments Off on How Much Retirement Income Will You Really Need? | Posted in Retirement News

Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.2

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

Citations.
1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin
2 marketwatch.com/news/story/health-care-costs-retirement-rise/story.aspx?guid=%7bEF2B6CDA-E176-4747-B528-76AC814051C5%7d&print=true&dist=printTop
3 money.cnn.com/2007/05/14/pf/retirement/nasi__report/index.htm

The Fiduciary In The 401(K) Plan

October 14th, 2010 | Comments Off on The Fiduciary In The 401(K) Plan | Posted in Retirement News

An employer sponsored retirement plan is an important employee benefit and sponsors have a fiduciary responsibility to protect the rights and benefits of participants and their beneficiaries.  Failure to meet fiduciary obligations can result in potential added expenses, litigation and in some cases, prosecution.  There are some basic principles that a fiduciary must always follow when it comes to the retirement plan.  These are:

  • Act solely in the interest of the plan’s participants and beneficiaries.
  • Maintain the plan and its assets for the exclusive purpose of providing benefits.
  • Act with care, skill, prudence and diligence as a prudent person would act in a similar circumstance.
  • Diversify the plan’s assets to minimize risk unless it is prudent to do otherwise; for a defined contribution plan, this rule can be taken to mean that you must provide sufficient investment choices to allow participants to diversify their account balance to achieve an optimum balance between risk and return that is appropriate for their long-term investment portfolio.
  • Maintain the plan in accordance with governing laws and the plan document.

 

Understanding how the principles above relate to actual decisions and activities of the fiduciaries can be difficult.  PRIMESolutions Advisors will provide the Plan Sponsor with a checklist to identify the key steps that fiduciaries should follow to meet their fiduciary obligations to the retirement plan and its participants.

PRIMESolutions Advisors, LLC excels in designing employee education and communication programs that target different groups of workers, in different ways, inside your organization.  Whether print, technology or in person, we craft a program so participants can save enough and invest well.

Helping participants adequately save and invest for retirement not only increases the likelihood of their successful retirement outcome; it also raises the profile and appreciation of their employee benefit.

The hot topics for 2011 will be fee disclosure and education.  Contact us for support in meeting your fiduciary responsibility and ask about our fiduciary checklist.  This 35-point checklist will assist you not only with fee disclosure and education but also in all facets of fiduciary governance.

Contact us at 877-366-401k.

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